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Mortgage borrowers benefit at the expense of savers

Friday, 15 January 2010 Writes Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

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Cheaper mortgages are great news for borrowers, but savers are being left out in the cold with poor returns.

Banks and building societies have reduced their mortgage rates significantly over the last few months, but to balance this they have cut savings rates too.

The focus appears to have switched back to lending.

The average rate on a two-year fixed-rate mortgage has fallen from 5.11% to 4.87% since November, according to financial information company Moneyfacts.co.uk.

Meanwhile the average return on a cash ISA has fallen from 0.81% to 0.75% and the average rate on a five-year savings bond has fallen from 4.77% to 4.54%.

Michelle Slade, analyst at Moneyfacts.co.uk, recalled: “Savers’ money was in high demand during 2009, leading many banks and building societies to offer rates as much as 10 times the base rate.”

But things have changed: “The focus appears to have switched back to lending and as the demand for savers’ money reduces, so do the rates offered,” added Slade.

Slade said that many savers had experienced their worst ever annual returns in 2009 and warned that 2010 isn’t shaping up to be much better.

“The only benefit is likely to come from the forthcoming ISA season that will see providers battling it out to attract savers’ tax-free allowance,” she said.

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